Home Agent Appeals Court Deals Blow To NAR, Allows Pocket Listing Suit To Continue

Appeals Court Deals Blow To NAR, Allows Pocket Listing Suit To Continue

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A federal appeals court has reversed a lower court ruling that had thrown out an antitrust lawsuit against the National Association of Realtors over the trade group’s pocket listing policy.

After hearing oral arguments in January, a three-judge panel at the Ninth U.S. Circuit Court of Appeals on Tuesday sent the case back to the U.S. District Court for Central California, allowing it to proceed.

The suit was brought by The PLS, formerly a private listing network for real estate agents, against NAR and the California Regional MLS (CRMLS), Bright MLS and Midwest Real Estate Data (MRED) over the controversial Clear Cooperation Policy, which requires listing brokers to submit a listing to their MLS within one business day of marketing a property to the public. (The PLS now calls itself The NLS, though it remains The PLS in legal filings.)

Mantill Williams

“We are disappointed in this decision,” NAR spokesperson Mantill Williams told Inman in an emailed statement.

“The Clear Cooperation Policy advances equal opportunity in housing by ensuring listings are widely available and accessible to all. Without the protections from the CCP, consumers would be disadvantaged because agents could refuse to give them or their agents access to those listings.

“We look forward to the next stage of this case, in which we will show the CCP is pro-competitive and pro-consumer and consistent with all laws and regulations.”

NAR has its work cut out for it, given the appeals court’s assertions regarding the CCP and what appears to be a keen interest in the case from the U.S. Department of Justice, which is currently investigating NAR over the CCP and other rules. The district court dismissed The PLS’s case in February 2021, and in June the DOJ Antitrust Division filed an amicus brief in support of neither party, but echoing the arguments in The PLS’s appeal.

In January, the DOJ spoke at oral arguments in The PLS’s appeal contending that The PLS should not have to argue that the CCP harms consumers or buyers in order for its antitrust case against NAR to go forward, contrary to the lower court’s assertion that the company did not plausibly allege harm to competition or to consumers, and failed to allege a plausible injury to participants on both sides of the real estate market — not just to sellers, but also to buyers.

The appeals court agreed with the DOJ and The PLS, finding that the definition of “consumer” can also include businesses who use products to create another product or service and therefore The PLS was not required to allege harm to buyers and sellers; alleging that the policy hurt agents who consume listing services was sufficient.

The court also concluded that PLS “adequately alleged” antitrust injury by alleging that the CCP was part of a group boycott to prevent The PLS from competing with MLSs, leaving agents with fewer choices, inflated prices and lower-quality products.

“The Clear Cooperation Policy, as PLS characterizes it, shares all the hallmarks of a group boycott: PLS’s competitors coerced its suppliers (sellers’ agents) not to supply PLS with listings (or to do so only on highly unfavorable terms), and they did so for the express purpose of preventing PLS, a new entrant to the market after decades of little to no competition, from competing with the MLSs,” wrote Judge Milan D. Smith Jr., who wrote the opinion for the panel.

Judge Milan D. Smith Jr.

“PLS also alleges that the effort succeeded: ‘Listings were removed from PLS and submitted instead to NAR-affiliated MLSs,’ ‘[a]gent participation in PLS declined,’ and ‘PLS was foreclosed from the commercial opportunities necessary to innovate and grow.’ Therefore, PLS has adequately alleged a group boycott.”

While the defendants had argued that the CCP didn’t cut off access to anything, doesn’t prevent brokers or agents from using competing listing networks, and is “pro-competitive,” Smith said the panel did not find those arguments persuasive.

“First, a group of competitors coercing a competitor’s suppliers to sell to that competitor only on ‘unfavorable terms’ constitutes a group boycott even if the competitors do not completely cut off the competitor’s access to inputs it needs,” Smith wrote. “That is because businesses that can obtain those inputs only on unfavorable terms are unlikely to be able to compete.”

The CCP requires the vast majority of The PLS’s suppliers (listing agents who are members of Realtor-affiliated MLSs) to supply to The PLS’s main competitors (Realtor-affiliated MLSs) even if The PLS’s product is better, according to Smith.

“Regardless of what PLS does — whether it charges less to list properties, provides a nationwide network, or develops a better interface — agents who belong to a NAR-affiliated MLS may not list on PLS without also listing on an MLS,” he wrote.

“Thus, the Clear Cooperation Policy essentially eliminates competition for most sellers’ agents’ listings between NAR-affiliated MLSs and rival services.”

Defendants’ contention that the policy is not coercive because listing agents who want to put their listings exclusively in a competing service can do so if they stop subscribing to the MLS “is even less persuasive,” according to Smith.

“That is precisely the dilemma the Sherman Act is designed to prevent,” he wrote.

“In every group boycott, the dominant firms force their suppliers or customers to choose between assisting the dominant firms in injuring their competitors or working exclusively with those competitors, knowing that because of the dominant firms’ market power very few suppliers or customers will be able to rely exclusively on the competitors.

“That the customers or suppliers technically have a choice does not mean the group boycott is not coercive.”

Lastly, the judges did not buy the argument that the CCP is procompetitive because it makes it easier for buyer agents to see more listings in MLSs and avoids the need for them to consult competing services — that does not explain how the policy enhances competition, according to Smith.

“At bottom, Defendants argue that the Clear Cooperation Policy results in a higher quality product: a listing service with all of the publicly available listings in one place,” he wrote.

“But justifying a restraint on competition based on an assumption it will improve a product’s quality ‘is nothing less than a frontal assault on the basic policy of the Sherman Act.’”

If buyer agents prefer listing services with more listings in one place, then MLSs should be well able to compete with PLS and other upstarts, Smith noted.

“But the fact that PLS was growing rapidly despite the MLSs’ larger inventory of listings might suggest that PLS offered features that at least some buyers’ agents found attractive, despite the lower concentration of listings,” he wrote. “In the end, sparing consumers the need to patronize competing firms is not a procompetitive justification for a group boycott.”

The appeals court also agreed with the DOJ that The PLS was not required to make separate allegations of harm to participants on both sides of a market, but rather that alleging net harm on the market as a whole — where the harm on one side of a market outweighs the benefits on the other side — is sufficient.

Even still, The PLS did allege that the CCP harms competition in the real estate listing network services market because it injures both listing agents and buyers’ agents, Smith noted.

“PLS alleges that the Clear Cooperation Policy prevented innovative competitors from entering the market and growing large enough to meaningfully compete with the MLSs, leaving both buyers’ agents and sellers’ agents with fewer choices, supra-competitive prices, and lower quality products,” he wrote.

While the defendants suggested that the alleged benefits of the CCP to buyer agents outweighed the alleged costs to buyer agents and listing agents, the question of “whether the alleged procompetitive benefits of the Clear Cooperation Policy outweigh its alleged anticompetitive effects is a factual question” that remains open, according to Smith.

Read the opinion:

What do you think of the ruling? Let us know in the comments below.

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